Verizon-Skype mobile VoIP app tests profitability for voice as data

Verizon Wireless's approval of a Skype mobile VoIP app for its network may be more PR than substance. But it also signals that wireless operators are trialing mobile voice over IP (VoIP) applications to see whether they can reverse dwindling profits from voice services.

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these applications to see whether they can reverse dwindling profits from voice services either by outsourcing them or throwing them on one all-data network.

My feeling is that underneath the Skype relationship is the 'future of voice' experiment.
Tom NollePresident, CIMI Corp.

"The operators are kind of running a quiet experiment. They want to see whether customers would move to a Skype-calling model on a handset that had [VoIP] capability and essentially transfer their strategy to a Skype strategy," said consultant Tom Nolle, president of CIMI Corp. "My feeling is that underneath the Skype relationship is the 'future of voice' experiment."

At a joint press conference on Tuesday at Mobile World Congress in Barcelona, Verizon and Skype officials outlined basic details of the app, dubbed Skype Mobile, which will be available on nine BlackBerry and Android-based smartphones in late March. Verizon customers will be able to make unlimited Skype-to-Skype calls through their data plans and receive Skype's deeply discounted international call rates.

Although neither Verizon nor Skype would disclose specifics of their agreement -- particularly whether Verizon would share any revenue from paid Skype calls -- it is unlikely that direct revenue from the app is the carrier's goal, according to Mike Jude, a program manager at Stratecast, a division of Frost & Sullivan.

"What Verizon is looking at is the erosion of revenue associated with voice services. Essentially, voice is a commodity, so if you're just buying a cell phone to do voice, then they're not making much money," Jude said. "Having an application out there that people want to use, like Skype, is actually a good way for them to sell data."

Verizon stands to tap into Skype's 580 million users, a point not lost on John Stratton, executive vice president and chief marketing officer for Verizon Wireless, who said earlier this week that the carrier expected the app would spur new customer growth and encourage voice-only customers to pony up for data plans, too.

"If you're one of those folks who is a Skype user [but not a Verizon customer], there's any number of reasons you might be attracted to this service," Stratton said. "It helps us drive our smartphone share of the market and increase smartphone penetration in the customer base."

Mobile VoIP apps could define future of voice services

The app would not allow domestic calls to non-Skype users, and Verizon will continue to offer data plans only with voice services. But that may change if Verizon sees heavy adoption and continued use of the Skype mobile VoIP app, Nolle said, especially as carriers grow uninterested in maintaining their traditional and increasingly unprofitable 3G voice infrastructure.

More on mobile VoIP apps and the future of voice

"All of the mobile operators are confronting a basic challenge, which is, 'What do you do with voice?' The service providers want the customers' ARPU, or average revenue per user, to either stay the same or grow. They're not especially concerned about how that is achieved," Nolle said. "If they could get a customer to pay $100 a month for data only, that's fine. If they want to pay $50 for voice and $50 for data, that's fine."

But if customers show sustained interest in using mobile VoIP apps to replace traditional voice calling, he said, carriers may find it more financially feasible to cut deals with companies such as Skype and Vonage rather than reinvent the wheel.

"Verizon knows that by putting Skype on a handset, people are either going to try it and like it, or try it and not like it," Nolle said. "[Verizon] is prepared to take the risk [of losing voice revenue] … because they need to know whether the voice calling model is transforming."

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